To say international payment processing is complicated is an understatement.
Whether a company seeks to process cross-border payments from consumers or other businesses, they must deal with fees, currency conversions and international regulations — all while delivering a localized user experience to its customers.
With so many moving parts, it’s understandable that businesses want to own as much of the process as possible.
There are many things to consider when embarking on an international payment development project. Here are five of the most important.
Localizing the Payment Experience
People in different countries have their own preferred payment methods. Businesses therefore need to understand the most popular payment methods for every target market, says Sue Park, senior director of Global Product Go to Market at Visa.
Often, there’s no one single solution that will satisfy everyone, so offering multiple payment options is usually the best solution. In any case, businesses should list prices in the local currency, she adds. “No matter which method of payment processing your merchant service provides, you should make your customers feel at home by listing prices in their local currencies.”
When businesses look to offer local pricing, they’ll need to set up several local or multi-currency accounts and reconcile each transaction to the appropriate account. This comes with several benefits, writes Iris ten Teije, a cofounder of Koia:
“You’re going to save yourself a lot of headache when you’re accepting payments in multiple currencies and have suppliers scattered around the world. You don’t have to worry about funds lost in the conversions (especially as you scale) and complicated accounting and reconciliation at the end of each month.”
Businesses will also need to localize the language of their payments infrastructures if they want to create a dependable experience. “It all boils down to trust,” writes Nataly Kelly, vice president of localization at HubSpot. “People want reassurances before they are willing to make a payment, and the message that surrounds the transaction is vital, sometimes even more important to them than the money.”
Handling Tax and Duties
VAT, sales tax and other duties are a constant (and ever-evolving) challenge that any international payments solution will need to overcome.
Tax consultant Donato Raponi calls them one of the biggest barriers to international e-commerce. In fact, companies in the EU have to spend approximately 8,000 euros (about $9100) each year to register and account for VAT. And that’s per member state: 8,000 euros to do business in France, 8,000 euros more to do business in Germany, and on down the line.
SmallBusiness.co.uk Editor Timothy Adler points out that any British business wishing to register for the right to pay VAT in the European Union could spend up to £130,000 — and that’s before they’ve even sold anything.
Further, these laws and levies are constantly changing, and businesses must keep up, says Nick Hart, director of VAT at Saffery Champness. “E-commerce companies doing business in foreign consumer markets need to be vigilant about keeping up with tax laws in every country where they have customers purchasing their products and services. If they don’t need to register and pay VAT taxes now, chances are they soon will.”
Building a compliance and accounting infrastructure to handle these taxes is a must for anyone operating in international markets. Navigating international trade laws can be time-consuming work. Having dedicated departments increases the chances of compliance while mitigating the potential damage of an audit.
A dedicated team can also oversee the localization of prices with regard to tax and duties, something businesses need to consider with regard to user experience. Consumers in most of Europe, for example, expect these duties to be included in the price shown on their screens, not added at checkout.
“Inaccurately calculated duties and taxes can create confusion and frustration for cross-border shoppers, especially if these fees aren’t clearly communicated up front,” says Rob Keve, CEO and cofounder of Flow Commerce. “Furthermore, consumers don’t want to pay additional fees upon order delivery, which often happens if a brand doesn't allow them to pay those fees up front at checkout.”
Reducing Fees Where Possible
Traditional cross-border payment methods send money through a network of correspondent banks. As a result, they are riddled with delays and fees, says Erika Baumann, the director of Aite-Novarica's commercial banking and payments. "You may or may not know what those fees are and then have to send a secondary transaction to make up for that if your recipient is short paid, because of the fees taken during the correspondent banking process."
These fees include intermediary bank fees and wire transfer costs. Intermediary banks step into the middle of international transactions to complete them if your bank doesn’t have a relationship with the other party’s bank. There can be several intermediary banks involved, each of which will charge a fee.
Businesses will need to understand the impact of one of those costs, authorization rates, on their bottom line, writes Alison Morris, SVP of strategic expansion at Worldpay. Authorization rates are usually higher for local transactions since cross-border transactions carry greater risk for fraud, she explains. One solution is to process transactions locally where possible.
“This typically means we see authorization rates — and consequentially profitability — improve when merchants move from cross-border to local processing provided by your payment processor.”
Meeting International Regulations
There is no shortage of regulations or compliance issues that must be addressed when building an international payment tool that collects and stores payment.
How businesses collect and store such data is an ever-growing concern, and one developers will need to address. Operate in Europe, for instance, and GDPR will determine exactly what you can do with consumer data, writes Béatrice Ozanne, COO and cofounder of Statrys. You’ll also need to make allowances for customers to access some of that data.
On top of that, most countries will have anti-money laundering rules that govern the type of financial information you’ll need to collect. Failure to do so can result in fines or even criminal sentencing.
Anti-money laundering requirements can be particularly complex, the team at PYMNTS writes: “International transactions must be vetted not only by financial institutions (FIs) in the sending and receiving countries, but also by every correspondent bank the payments flow through along the way.
“These transactions must be vetted to ensure they are not the result of money laundering or fraudulent activity, and each of these checks can take up precious time — especially when they are done manually.”
Partnering With an Expert
It pays to partner with someone who has experience overcoming the challenges of international payment systems.
“Partnering with an expert can help lessen the stress of expanding into global markets,” says Eric Christensen, chief payments officer and vice president of product at Digital River. It can also accelerate the time it takes to enter new markets and remove barriers to entry.
It’s also helpful to seek the advice of consultants concerned with other areas of the process. Tax experts are invaluable, as are developers with experience in fintech.
Building an international payments system is no easy feat. But by understanding the need to localize the experience, handle taxes, reduce fees and meet regulatory requirements, it becomes significantly more manageable — especially when you have a trusted partner guiding your way.